Department:Sloan School of Management.; Massachusetts Institute of Technology. Dept. of Mechanical Engineering.; Leaders for Manufacturing Program.

Publisher:Massachusetts Institute of Technology

Date Issued:2004

Abstract:

Telematics, defined as the vehicle features and services made available through a wireless connection to data or other resources not onboard the vehicle, provides one of the most promising areas of innovation and value creation in the automobile market today. However, up to now the US market has only experienced successful telematics businesses in the quazi-insurance field of Safety and Security. In contrast, Consumer Telematics, defined as the confluence of consumer electronics and vehicle telematics, presents a much more exciting market opportunity. In spite of this, inadequate bandwidth, poor usability, fragmented standards and excessive cost have together created sufficient barriers so as to deter any automakers from entering the market. In this thesis, we argue that the viral growth inherent in Wi-Fi class mobile peer-to-peer (mP2P) telematics presents an opportunity for an automotive OEM with significant marketshare to transcend these barriers, and thus capture significant value from this up-to-now elusive market. To do so, we analyze the proposed business through the filters of technology, value chain, applications and market dynamics in order to craft a comprehensive strategy for entering the market and insuring sustained return through its maturation. The technology analysis both presents the potential benefits and limitations of mP2P as well as likely competitors and substitutes. It suggests that mP2P has a sustainable cost and bandwidth advantage over other architectures. Our examination of the Telematics value chain indicates that the wireless connectivity and IP backhaul segments of the chain are predisposed towards commodization and thus should be outsourced in a manner that retains flexibility to switch carriers and even technologies as the market(cont.) evolves. By segmenting the most promising applications according to their connectivity demands, we plot out how service offerings should evolve in concert with the quality of wireless connectivity and market adoption. Finally, analyzing the market dynamics indicates the critical mass threshold where customer willingness-to-pay exceeds the cost, and thus the trade-offs between investment and strategy necessary for success. We conclude that this critical mass where viral growth ensues exists at only 3-5% market penetration, a target easily achieved by an Automotive OEM with dominant marketshare such as General Motors. The proposed strategy resulting from this analysis endeavors to ensure sustained return by embracing an evolving business model. While initial value is captured through vehicle differentiation, it then shifts to primarily service revenue. Eventually, if the business is successful in garnering widespread adoption, value would eventually be principally derived through hardware licensing and operating system revenue. In the end, the key to success for the OEM is to set aside its traditional ways of doing business in order to leverage the complementary market forces that drive viral growth. Without this, this business is daunting and risky ...

Description:

Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management; and, (S.M.)--Massachusetts Institute of Technology, Dept. of Mechanical Engineering; in conjunction with the Leaders for Manufacturing Program at MIT, 2004.; Includes bibliographical references (p. 136-139).